PROJECT REPORT

SUBJECT: MANAGERIAL ECONOMICS

TOPIC: MEASURING INDUSTRY CONCENTRATION OF “OIL & GAS”

NAME: AMMARA NAWAZ

ADEEBA MUKHTAR

ROLL NO # 03, 10

CLASS: MBA (A5)

SEMESTER: 5TH-2020

SUBMITTED TO: PROF BADAR

DATE: 26-02-20

DEPARTMENT OF BUSINESS ADMINISTRATION & ECONOMICS

UNIVERSITY OF CENTRAL PUNJAB

FAISALABAD CAMPUS

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Table of Contents

Industry Profile............................................................................................................................................3
Vision statement.......................................................................................................................................4
Mission Statement....................................................................................................................................4
Our Values:..................................................................................................................................................4
Value Chain:................................................................................................................................................5
Products:.....................................................................................................................................................5
Target Market...........................................................................................................................................6
Key Competitor:..........................................................................................................................................6
Major Uses of PSO:......................................................................................................................................7
Acquisition of Products................................................................................................................................7
Product Movement.....................................................................................................................................8
Industry Concentration:...............................................................................................................................8
OIL & GAS MARKETING COMPANIES DATE FOR THE YEARS 2016...............................................................9
HH-Index:...................................................................................................................................................10
OIL & GAS MARKETING COMPANIES DATE FOR THE YEARS 2014.............................................................11
HH-Index:...................................................................................................................................................12
Reference:.................................................................................................................................................13

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Industry Profile
Oil and Gas sector in Pakistan has seen phenomenal growth since the independence in 1947
when oil quantities produced were scarce. At that time there was no gas production. Over the
past half century the petroleum industry has played a significant role in national development by
making large indigenous gas discoveries. With looming energy crises and the ongoing growing
demand for oil and gas in Pakistan, the exploration and production of oil & gas, or upstream has
garnered considerable interest from investors (both local and foreign). This note attempts to
encapsulate the evolution of the laws and regulatory framework governing the upstream sector
and a high level summary of policy initiatives and regulatory and procedural measures taken by
the Government from time to time. This note also briefly sets out the requirements for becoming
a holder of a petroleum right in Pakistan either.

Pakistan State Oil Company Limited

Pakistan State Oil Company Limited, namely PSO was found in 1976, as a result of an
amalgamation of the formal three oil-marketing companies i.e. Pakistan National Oils Limited,
Premiere Oil Company and Esso Undertakings in Pakistan. As the largest Oil Marketing
Company in Pakistan, Pakistan State Oil is committed to efficiently meeting the country's energy
needs beyond the 20th Century. Further, Asia Week has listed PSO in Asia’s largest 1000
companies.PSO is the oil market leader in Pakistan enjoying over 73% share of Black Oil market
and 59% share of White Oil market. It is engaged in import, storage, distribution and marketing
of various POL products, including Morass (Motor Gasoline), HSD, Fuel Oil, Jet Fuel,
Kerosene, LPG, CNG and pert-chemicals

The Government of Pakistan (GOP) holds approximately 54% stake in Pakistan State Oil
Company Limited (PSO), including both direct holdings of the Federal Government and indirect
holdings through GOP owned institutions. The GOP is in the advanced stages of divesting 51%
of the in PSO to a strategic investor.PSO is the largest oil marketing company (OMC) operating
in Pakistan and is engaged in the storage, distribution and marketing of petroleum products,
LPG, CNG and petrochemicals. Currently, PSO has more than 4,400 retail outlets spread all
across the country has extensive storage capacity, almost 81% of total national storage.

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Vision statement
To excel in delivering value to customers as an innovative and dynamic energy company that
gets to the future first.

Mission Statement

 We are committed to leadership in energy market through competitive advantage in

providing the highest quality petroleum products and services to our customers, based on:
 Professionally trained, high quality, motivated workforce, working as a team in an
environment, which recognizes and rewards performance, innovation and creativity, and
provides for personal growth and development
 Lowest cost operations and assured access to long-term and cost effective supply sources
 Sustained growth in earnings in real terms
 Highly ethical, safe environment friendly and socially responsible business practices

Our Values:

Excellence

We believe that excellence in our core activities emerges from a passion for satisfying our
customers' needs in terms of total quality management. Our foremost goal is to retain our
corporate leadership.

Respect

We are an Equal Opportunity Employer attracting and recruiting the finest people from around
the country. We value contributions of individuals and teams. Individual contributions are
recognized through our reward and recognition program.

Innovation

We are committed to continuous improvement, both in New Product and Processes as well as
those existing already. We encourage Creative Ideas from all stakeholders.

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Corporate Responsibility

We promote Health, Safety and Environment culture both internally and externally. We
emphasize on Community Development and aspire to make society a better place to live in.

Value Chain:

PSO holds an important position in Oil & Gas Value Chain. The Company imports various POL
products and Petrochemicals and has the largest storage base spread across Pakistan. PSO also
distributes and markets these products to end consumers across various industries including
Defense, Aviation, and Railways etc. as well as to millions of retail customers through a strong
network of retail outlets across the country.

Products:

Motor Gasoline

Its natural state gasoline is a liquid with a strong solvent smell. Typically it is used to fuel
internal combustion engines for cars, motorbikes, trucks, boats and other transport vehicles.
Highly refined gasoline can be used as aviation fuel.

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Jet Fuel:

Jet fuel is a type of aviation fuel designed for use in aircraft powered by gas-turbine engines. It is
clear to straw-colored in appearance.

High Speed Diesel

HSD is normally used in the engine which runs above 750rpm such as in buses, locomotives,
trucks etc.

Light Diesel Oil:

 LDO is used in below 750 rpm engines. Generally it is used in steady engines or to burn in
furnace.

Fuel Oil:

Fuel oil is obtained from petroleum distillation and is any liquid fuel that is used to generate heat.

LPG (Liquefied Petroleum Gas):

Liquefied petroleum gas or liquid petroleum gas (LPG or LP gas), is a flammable mixture

of hydrocarbon gases used as fuel in heating appliances, cooking equipment, and vehicles.

CNG (Compressed Natural Gas ):

Compressed natural gas (CNG) (methane stored at high pressure) is a fuel that can be used in
place of gasoline, diesel fuel and liquefied petroleum gas (LPG).

Target Market
The target market of PSO is the Industrial Segments of Pakistan and all diesel vehicles.

Key Competitor:
 Shell Pakistan Limited

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  Pakistan Petroleum Limited
 Attock Refinery Limited
 Attock Petroleum Limited
 Oil & Gas Development Company Limited
 National Refinery Limited
 Pakistan Oilfields Limited

Major Uses of PSO:

Pakistan State Oil (PSO), is the nation’s largest energy company, and is currently engaged in the
marketing and distribution of various POL products including Motor Gasoline (Mogas), High
Speed Diesel (HSD), Jet Fuel (JP-1), Kerosene, CNG, LPG,.In addition to these products, we
also import other products based on their demand patterns. A brief overview of each of PSO’s
business facets is presented below:

Marketing & Distribution

PSO possesses the largest distribution network in the country comprising of 3,754 outlets out of
which 3,565 outlets serve the Retail sector and 189 outlets serve our bulk customers. Out of the
total of 3,754 outlets, 1,786 Retail and 167 Consumer Business outlets have been upgraded with
the most up-to-date facilities as per the visualization of the New Vision Retail Programme.

Acquisition of Products
The automotive sector is the main consumer of Motor Gasoline (Mogas) and High Speed Diesel
(HSD) whereas Furnace Oil (FO) is marked for power plant usage.

Storage

PSO possesses the largest storage capacity in the country. The company’s infrastructure stretches
from Karachi to Gilgit. With 9 installations and 23 depots located across the country PSO’s
storage capacity of approximately a million metric tons represents 68% of the total storage
capacity owned by all the oil marketing companies.

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Product Movement
PSO uses three mechanisms for the movement of POL products namely, tank lorries (road), tank
wagons (railways) and pipelines. With the commencement of operations of the White Oil
Pipeline Project (WOPP) from Karachi to Mehmood Kot via Shikarpur and the MFM (Mehmood
Kot/Faisalabad) .

Industry Concentration:
There are two concentration ratios which are identified above

 C4 Ratio
 H-H Index

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OIL & GAS MARKETING COMPANIES DATE FOR THE YEARS 2016
C4-Ratio=S1+s2+s3+s4/total
      Sale OR Total Income sale of Industry
Sui Northern Gas Pipelines
1 SNGP Limited 250,646.588 0.839483643
2 SHEL Shell Pakistan Limited 167,641.602  
Pakistan State Oil Company
3 PSO Limited 677,966.877  
4 HTL Hi-Tech Lubricants Limited 7,015.302  
5 HASCOL Hascol Petroleum Limited 99,707.474  
6 BPL Burshane LPG (Pakistan) Limited 2,012.770  
7 APL Attock Petroleum Limited 109,234.361  
Sui Southern Gas Company
8 SSGC Limited    
         
    Total sale of Industry 1,314,224.974 C4-Ratio= 0.839483643

The C4 ratio of Top four Oil & Gass Companies is 0.839483643. The four-firm concentration ratio is calculated based on the market
shares of the largest firms in the industry. There is tight oligopoly because CH4> 60 percent. Tight oligopolies are oligopolies of which
the market characteristics facilitate the realisation of supranormal profits for a substantial period of time. We entangle the link between
market structure and the possibility of welfare reducing behaviour by firms.

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HH-Index:
HH-Index
HH Index=Sale/total (Sale/Total
sale (Sale/Total sale)^2 sale)^2*10000
0.190718175 0.036373422 363.734221
0.127559288 0.016271372 162.7137196
0.515868204 0.266120004 2661.200039
0.005337977 2.8494E-05 0.284939935
0.075867889 0.005755937 57.55936529
0.001531526 2.34557E-06 0.023455725
0.083116942 0.006908426 69.08426054
0 0 0
  3314.600001
  HH-Index= 3314.600001  

The Herfindahl-Hirschman Index (HHI) is a commonly accepted measure of market concentration. It is calculated by squaring the
market share of each firm competing in a market and then summing the resulting numbers. It can range from close to zero to 10,000.

The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a competitive marketplace, an HHI of 1,500
to 2,500 to be a moderately concentrated marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace.Oil &
Gass marketing companies year 2016 is 3314.600001 > 2500 because 3314.600001 is greater than 2500 this market is highly
concentrated and low competition.

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OIL & GAS MARKETING COMPANIES DATE FOR THE YEARS 2014
      Sale OR Total Income
Sui Northern Gas Pipelines
1 SNGP Limited 250,646.588
2 SHEL Shell Pakistan Limited 167,641.602
Pakistan State Oil Company
3 PSO Limited 677,966.877
4 HTL Hi-Tech Lubricants Limited 7,015.302
5 HASCOL Hascol Petroleum Limited 99,707.474
6 BPL Burshane LPG (Pakistan) Limited 2,012.770
7 APL Attock Petroleum Limited 109,234.361
Sui Southern Gas Company
8 SSGC Limited  
       
    Total sale of Industry 1,314,224.974

C4-Ratio=S1+s2+s3+s4/total sale of Industry

C4- RATIO= 0.42793

The C4 ratio of Top four Oil & Gass Companies is 0.42793. The four-firm concentration ratio is calculated based on the market shares
of the largest firms in the industry. There is Lose oligopoly because CH4< 60 percent. A loose oligopoly, on the other hand, is one in
which the four-firm concentration is in the range of 40-60.We entangle the link between market structure and the possibility of welfare
reducing behaviour by firms.

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HH-Index:

HH Index=Sale/total sale (SALES/ TOTAL SALES)^2 (Sale/Total sale)^2*10000

0.090362616 0.00816542 81.65402
0.427929528 0.18312361 1831.237
0.051217409 0.00262323 26.23223
0.043170361 0.00186368 18.6368
0.012805645 0.00016395 1.639845
0.092607231 0.00857609 85.76099
0.074731425 0.00558476 55.84786
0.005360821 2.87384E-05 0.287384
0.03057543 0.00093487 9.348569
0.033345896 0.00111199 11.11949
0.000889104 7.90506E-07 0.007905
0.06308035 0.00397911 39.79131
0.073924184 0.00546475 54.64785

The Herfindahl-Hirschman Index (HHI) is a commonly accepted measure of market concentration. It is calculated by squaring the
market share of each firm competing in a market and then summing the resulting numbers. It can range from close to zero to 10,000.

The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a competitive marketplace, an HHI of 1,500
to 2,500 to be a moderately concentrated marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace. Oil &
Gas marketing companies year 2014 is 2216.21106.Because 2216.21106 in between 1500-2500.This market is Moderately
concentrated.

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Reference:
https://en.wikipedia.org/wiki/Pakistan_State_Oil

https://psopk.com/en/product-and-services/overview

https://psopk.com/en/csr

https://psopk.com/en/product-and-services/aviation-marine-and-exports/pso-marine

https://psopk.com/en/product-and-services/gaseous-fuels-gf/liquefied-petroleum-gas-lpg

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